Buying a first home is an important milestone in achieving the American dream of homeownership and building personal wealth. It seems easy enough: find a house you like in your price range, arrange for financing, sign some papers and move in. But the pathway from searching the listings to closing can be bumpy without the right planning and guidance along the way.  Even the most seasoned Realtors® still find excitement in helping a first-time buyer navigate the route to home ownership. Here’s what your Realtor® would like you to know as you embark on your journey to a new home.

After determining the size and location you prefer, a Realtor® needs to know your housing budget.  Most first-time buyers will rely on mortgage financing, so it’s helpful to know how much money is available for a down payment and what monthly payment you can afford. Find a reputable lender early in the home buying process to select the best type of mortgage for you and to make sure you qualify for the best interest rate possible. Your Realtor® may recommend a lender they have worked with before.  Whatever lender you choose, they will likely advise you to avoid changing jobs, making large purchases, or having late payments.  A free credit report will help you identify any problems and allow you to correct any inaccuracies.  You will be asked to provide pay stubs or statements along with complete and unedited bank statements, so get in the habit of saving those important financial documents.  Your lender’s advice is critical in getting the best loan and terms possible.

Mortgage calculators like this one from Realtor.com can help you determine early on what you are comfortable spending.  Your lender can pre-qualify you for a loan.  This is not the same as approval but, instead, helps you see how much money you may be approved to borrow.  A good rule-of-thumb is that a mortgage payment, including taxes and insurance, not exceed 25 percent of your take-home pay.   

Especially for younger buyers, the required down payment can be a roadblock. In Alabama, there is a special First-Time Homebuyer Savings Account program that provides a tax deduction on money saved through a qualified savings account for a down payment and other specific costs associated with buying a home. The Alabama Association of REALTORS® (AAR) worked with the Alabama Legislature to create the program that began in 2019. Initially buyers had five years to save and spend their funds but last year AAR was successful in an extension the savings period to 10 years from the date the account is opened.  For more information about the First-Time Homebuyer Savings Account, click here.

Purchasing a home is one of the most important decisions you will make, so choose a local experienced Realtor® to guide you through all the steps toward home buying success. A Realtor® is a real estate professional who is not only licensed but also pledges to adhere to a strict Code of Ethics and Standards of Practice established by the National Association of Realtors®. Many Realtors® rely upon referrals from previous clients who were pleased with their work. Friends and family are a good source for referrals to an experienced professional. It’s also wise to choose a Realtor® who is well versed in the area or type of home you want.  Some are well known for properties in a particular neighborhood while others specialize in urban or rural properties.  Take the first step in your Realtor® search here.

Your Realtor® will advise you in preparing an offer and help you negotiate any counteroffers.  If an offer is accepted, you will likely be asked to pay earnest money, or a binder, which can either be a fixed amount or a percentage of the sale price. The money will be held is an escrow account until closing. Earnest money demonstrates your intent to buy the home if specified conditions are met.

Next comes an appraisal and home inspection. A home inspection is not always required, but is always advisable since it may disclose defects and needed repairs. An appraisal tells the lender how much the home is worth based on its features and comparable sales. If the appraisal falls short of the agreed upon purchase price, your Realtor® can help you navigate the options including a higher down payment, walking away from the deal, or seeking a price reduction from the seller.

With a clean home inspection and a good appraisal, the final stop is an appointment with a closing attorney or agent. The closing agent is a third party who handles the signing of legal documents transferring the sale of the home from the seller to the buyer. Your lender will advise you about items needed for closing including homeowners and title insurance.

There may be a few twists and roadblocks on the road to buying your first home, but an experienced Realtor® can clear your path toward the ultimate goal – settling into your first home knowing you made the best possible purchase.